Low Credit Score and the Price You Pay

Low interest rates are useless to the millions of consumers with less-than-outstanding credit scores. They end up paying a high premium when applying for credit cards.

This comes at a time when the number of Americans with poor credit is growing. Most lenders check borrowers’ FICO credit score, which ranges from 300 to 850, to determine whether to approve them for a credit and at what terms. In general, borrowers with a FICO below 720 will end up with higher interest rates.

Today, nearly a third of consumers have a FICO score in the 550 to 699 range (according to data from FICO). And nearly half of consumers have a FICO score that’s lower than 700.

Over the past year, qualifying for a credit card has become easier for consumers with poor credit. But the rates they get are very high, higher than for consumers with near-perfect scores.

The borrowers with credit score lower than 719 and the borrowers with even lower scores who want a credit card might consider a secured credit card. To get a secured card, a borrower gives the credit card issuer a security deposit, usually at least $200, which establishes a line of credit.

This security deposit is a kind of warranty for a credit lender and eliminates the risk of running up credit card debt because you pay for it upfront. Even if you don’t have big bucks in the bank, simply having a small savings account can usually get you a secured loan.

Thus secured deposit makes possible for lenders charge considerably lower interest rates in comparison with the regular credit cards that exist for the borrowers with unattractive credit history. And the borrowers are able to boost their credit scores on fair terms.